In certain instances our GAAP results of operations may not be
profitable when our corresponding non-GAAP results are profitable or
vice versa. The number of shares on which our non-GAAP earnings per
share is calculated may therefore differ from the GAAP presentation due
to the anti-dilutive effect of stock options, restricted stock units,
and employee stock purchase plan shares in a loss situation.

Non-GAAP gross profit, operating income, net income, and earnings per
share are supplemental measures of our performance that are not
presented in accordance with GAAP. Moreover, they should not be
considered as an alternative to any performance measure derived in
accordance with GAAP, or as an alternative to cash flow from operating
activities as a measure of our liquidity. We present non-GAAP gross
profit, operating income, net income, and earnings per share because we
consider them to be important supplemental measures of our operating
performance and profitability trends, and because we believe they give
investors useful information on period-to-period performance as
evaluated by management. Non-GAAP net income also facilitates comparison
with other companies in our industry, which use similar financial
measures to supplement their GAAP results. Non-GAAP net income has
limitations as an analytical tool, and therefore should not be
considered in isolation or as a substitute for analysis of our results
as reported under GAAP. In the future we expect to continue to incur
expenses similar to the non-GAAP adjustments described above and
exclusion of these items in our non-GAAP presentation should not be
construed as an inference that these costs are unusual, infrequent or
non-recurring. Some of the limitations in relying on non-GAAP net income
are:

Amortization of intangible assets represents the loss in value as the
technology in our industry evolves, is advanced, or is replaced over
time. The expense associated with this loss in value is not included
in the non-GAAP net income presentation and therefore does not reflect
the full economic effect of the ongoing cost of maintaining our
current technological position in our competitive industry, which is
addressed through our research and development program.

We regularly evaluate our business to determine whether any operations
should be eliminated or curtailed and engage in acquisition and
assimilation activities as part of our ongoing business. We therefore
will continue to experience special charges on a regular basis. These
costs also directly impact our available funds.

Our stock incentive and stock purchase plans are important components
of our incentive compensation arrangements and will be reflected as
expenses in our GAAP results.

Our income tax expense will be ultimately based on our GAAP taxable
income and actual tax rates in effect, which often differ
significantly from the 17% rate assumed in our non-GAAP presentation.
In addition, if we have a GAAP loss and non-GAAP net income, our
non-GAAP results will not reflect any projected GAAP tax benefits.
Similarly, in the event we were to have GAAP net income and a non-GAAP
loss, our GAAP tax expense would be replaced by a credit in our
non-GAAP presentation.

Other companies, including other companies in our industry, calculate
non-GAAP net income differently than we do, limiting its usefulness as
a comparative measure.

About Mentor Graphics

Mentor Graphics Corporation is a world leader in electronic hardware and
software design solutions, providing products, consulting services and
award-winning support for the world’s most successful electronic,
semiconductor and systems companies. Established in 1981, the company
reported revenues in the last fiscal year of about $1,090 million.
Corporate headquarters are located at 8005 S.W. Boeckman Road,
Wilsonville, Oregon 97070-7777. World Wide Web site:
http://www.mentor.com/.

(Mentor Graphics, FloTHERM and Capital are registered trademarks and
Sourcery is a trademark of Mentor Graphics Corporation. All other
company and/or product names are the trademarks and/or registered
trademarks of their respective owners.)

Statements in this press release regarding the company’s guidance for
future periods constitute “forward-looking” statements based on current
expectations within the meaning of the Securities Exchange Act of 1934.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the company or industry results to be
materially different from any results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: (i) weakness in the United States
or international economies; (ii) the company’s ability to successfully
offer products and services that compete in the highly competitive EDA
industry, including the risk of obsolescence for our hardware products;
(iii) product bundling or discounting of products and services by
competitors, which could force the company to lower its prices or offer
other more favorable terms to customers; (iv) effects of the volatility
of foreign currency fluctuations on the company’s business and operating
results; (v) changes in accounting or reporting rules or
interpretations; (vi) the impact of tax audits by the IRS or other
taxing authorities, or changes in the tax laws, regulations or
enforcement practices where the company does business; (vii) effects of
unanticipated shifts in product mix on gross margin; and (viii) effects
of customer seasonal purchasing patterns and the timing of significant
orders which may negatively or positively impact the company’s quarterly
results of operations; all as may be discussed in more detail under the
heading “Risk Factors” in the company’s most recent Form 10-K or Form
10-Q. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. In addition,
statements regarding guidance do not reflect potential impacts of
mergers or acquisitions that have not been announced or closed as of the
time the statements are made. Mentor Graphics disclaims any obligation
to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements to reflect future
events or developments.